November 10, 2010
Mr. Chairman, I would like to thank the teams who have worked so hard on the rules we will consider here today. The staff has actively sought input from the Commissioners and worked to make improvements to each of these rulemakings.
I would like to commend Duane Andresen and Barbara Gold and their teams for their work on their respective rulemakings.
I would also like to extend my thanks to Joan Manley and Edward Riccobene for their work on the whistleblower rule proposal. I am particularly pleased that the proposed rule provides for an office of consumer education and outreach that can be funded by the penalties and fines collected by the Commission. I believe that we can do a much better job of providing consumers with information about our markets and providing them with a forum where they can receive a timely resolution to their complaints.
I would also like to extend my thanks to Sarah Josephson and her team for crafting four separate proposed rules under sections 731 and 732. The Dodd-Frank Act, which mandates implementation of conflict of interest rules, rules establishing a chief compliance officer, and specific duties for swaps dealers, is only 6 pages in length.
However, the attendant rulemakings exceed 130 pages. The sheer length of these combined rules illustrates to me that this Commission is shifting from its traditional role as a principles-based agency to a highly prescriptive rules-based regulator.
Mr. Chairman, you deserve credit for marshalling the Commission staff resources to put together the teams to tackle the massive number of rulemakings and issues embodied in the over 2,300 pages of the Dodd-Frank Act.
Let me say that I am both amazed and proud of the capabilities of the Commission staff to develop these rules in the timeframe which you have mandated.
While we will differ on the recommended policy outcomes of some of the proposed rulemakings, I am reminded that these highly prescriptive rules are not conceived out of thin air, but are the direct outcome of the Dodd-Frank legislation.
In keeping with both the mandates of the statute and your timelines, I would like to make the following suggestions to improve the rulemaking process going forward and to provide some clarity to market participants as well.
First, I think we must immediately produce the critical definitions that define swap market participants. Specifically, the swap dealer, major swap participant, and end-user definitions must be released sooner rather than later. Each rulemaking that passes without some clarity regarding these definitions creates confusion and uncertainty. I hope we can address this at the next Commission rulemaking on November 19th, as originally planned.
Today, for example, we will debate the terms and conditions for registering swap dealers, but we have yet to provide a definition that spells out who this rule will apply to.
Second, I strongly recommend that we conduct a staff roundtable on the “capital and margin” issue prior to the release of a proposed rulemaking. I would also suggest that we release the swap dealer, major swap participant, and end-user definitions prior to this hearing so that the public has some understanding of who will be impacted by the capital and margin rules.
Third, I think we must vote on the real-time reporting rule proposal concurrently with the “swap execution facility” definition. Understanding what type of trading platforms will be permitted is essential to informing our decision on the real time reporting standards, and block trade limitations.
Finally, I would prefer that all of the rules related to clearing be considered together during one Commission rulemaking meeting. Addressing individual segregation, portfolio margining and the DCO core principals will give the public a more accurate picture of the new clearing standards and the associated costs. I am very concerned about the cumulative cost of various clearing mandates.
While a primary goal of the Dodd-Frank Act was to eliminate “Too-Big-To-Fail”, I fear we are about to create a clearing mandate that makes it “Too-Costly-To-Clear”. We need to evaluate all of the clearing requirements together to understand the overall market impact.
Mr. Chairman, I hope that we can make the necessary adjustments to the schedule in order to release the critical definition rulemakings and give market participants a better understanding of how they may be impacted by the mandatory clearing and exchange requirements, and most importantly, the costly margin and capital rules. I believe these changes in our schedule will facilitate the development of informed and useful responses to our rulemakings going forward.
Last Updated: February 17, 2011